In the mid-1930s he organised a Ranger's Club for young people, served as clerk and president of the local Board of Education, served as a parole officer, organised a local Men's Club and a Parent-Teacher Association. He also lectured in American Regional Literature at the University of Wisconsin.

In 1941 he became literary editor of The Capital Times newspaper in Madison, a post he held until his resignation in 1960.

Derleth was married April 61953 to Sandra Evelyn Winters; they were divorced six years later. He retained custody of their two children, April Rose and Walden William. In 1960, Derleth began editing and publishing a magazine called Hawk and Whippoorwill, dedicated to poems of man and nature.

Arkham House and the Cthulhu Mythos

Derleth was a correspondent and friend of H. P. Lovecraft – when Lovecraft wrote about "le Comte d'Erlette" in his fiction, it was in homage to Derleth. Derleth invented the term Cthulhu Mythos to describe the fictional universe described in the series of stories shared by Lovecraft and other writers in his circle. Derleth's own writing emphasized the struggle between good and evil, in line with his own Christian world view and in contrast with Lovecraft's depiction of an amoral universe. Derleth also treated Lovecraft's Old Ones as representatives of elemental forces, creating new entities to flesh out this framework.

When Lovecraft died in 1937, Derleth and Donald Wandrei put together a collection of that author's stories and tried to get them published. With existing publishers showing little interest, they founded Arkham House in 1939 to do it themselves. The name of the company came from Lovecraft's fictional town of Arkham, Massachusetts, which is featured in many of his stories. In 1939 Arkham House published The Outsider and Others, a huge collection that contained most of Lovecraft's known short stories. Derleth and Wandrei soon expanded Arkham House and began a regular publishing schedule after its second book, Someone in the Dark, a collection of some of Derleth's own horror stories, was published in 1941.

Following Lovecraft's death, Derleth wrote a number of stories based on fragments and notes left by Lovecraft. These were published in Weird Tales and later in book form, under the byline "H. P. Lovecraft and August Derleth", with Derleth calling himself a "posthumous collaborator." This practice has raised objections in some quarters that Derleth simply used Lovecraft's name to market what was essentially his own fiction; S. T. Joshi refers to the "posthumous collaborations" as marking the beginning of "perhaps the most disreputable phase of Derleth's activities.

A significant number of H. P. Lovecraft fans and critics, such as Dirk W. Mosig and S. T. Joshi, were dissatisfied with Derleth's invention of the term Cthulhu Mythos and his belief that Lovecraft's fiction had an overall pattern reflecting Derleth's own Christian world view. Still there is little but praise for Derleth for his founding of Arkham House and for his successful effort to rescue Lovecraft from literary obscurity. Ramsey Campbell has also acknowledged Derleth's encouragement and guidance during the early part of his own writing career, and Kirby McCauley has cited Derleth and Arkham House as an inspiration for his own anthology, Dark Forces.

Other writing

Derleth wrote more than 150 short stories and more than 100 books during his lifetime. Included among that number were several novels about a Sherlock Holmes-like British detective named Solar Pons. His other series included the Sac Prairie Saga, the Wisconsin Saga, and the Judge Peck mystery series.